Note worthy news articles about politics, the economy, national security issues, and other matters of interest with my thoughts, suggestions, rants and raves.
This article appeared in Daily Beast on August 24, 2012.
Let's try to put the ongoing debate over the future of
Medicare into a little bit of context. Last year, Americans paid $274
billion in Medicare taxes and premiums. At the same time, the program
paid out $564 billion in benefits. That amounts to a shortfall of
roughly $290 billion. Looking into the future, even the most optimistic
estimate by the program's trustees puts Medicare's future unfunded
liabilities at more than $38.6 trillion. More realistic projections
suggest the shortfall could easily top $90 trillion.
Faced with this ocean of red ink, the Obama and Romney campaigns are
busy claiming that the other guy wants to cut Medicare. They, on the
other hand, would never think for a moment about cutting anyone's
Medicare benefits. Hello. Can anyone out there do math?
Start with Mitt Romney, who claims that President Obama "stole" $716
billion from Medicare. Yes, Romney is correct that the new health care
law would reduce Medicare spending by $716 billion the next 10 years.
Primarily, the president would cut payments for Medicare Advantage
insurance plans, a private insurance option currently used by roughly
one in five seniors, and by reducing payments to providers—that is,
doctors and hospitals. The health care law also includes several pilot
projects, such as Accountable Care Organizations (ACOs) and medical
homes, designed to reduce the long term growth in health care costs.
It is important to point out that the president's "cuts" are cuts
only in the Washington sense of a reduction in the rate of increase.
Republicans have long protested when their similar proposed slowdowns in
growth were demagogued as cuts by Democrats. That would seem to make
Romney and Ryan's complaint a little hypocritical.
And, given that Medicare is adding some $300 billion to the deficit
every year, one might expect supposed fiscal conservatives like Romney
and Ryan to be more sympathetic to reducing Medicare's growth. It is
also true, as Obama has pointed out, that Romney's running mate, Paul
Ryan, actually incorporated that $716 billion in savings into the budget
that just passed the House of Representatives. Romney and Ryan now say
they would repeal all of those changes.
Obama's implication that current seniors would lose their Medicare benefits under Romney's plan is particularly dishonest.
That's not to say that President Obama has been honest about these
cuts either. First, the president claims that he is not actually cutting
benefits for beneficiaries. That is technically true in that most of
the cuts are reductions in payments to providers. But it is ridiculous
to assume that cutting payments to doctors and hospital will have no
impact on seniors. In fact, Medicare's own actuaries estimate that the
cuts could force as many as 15 percent of hospitals to close. Similarly,
at a time when physicians are already complaining that Medicare
reimburses at a rate less than actual costs, additional reimbursement
cuts will force many doctors out of practice or at least cause many to
stop accepting Medicare patients. Seniors may still have their full
Medicare benefits. They just won't be able to find a doctor who will
take them.
The president also claims that his cuts have "extended the life of
the Medicare trust fund by eight years." Again, technically true. But
extending the life of the Trust Fund is not the same thing as extending
the life of Medicare.
Any savings that the president does achieve would indeed be routed
through the Medicare Trust Fund, where they would be used to purchase
special-issue Treasury bonds. As an accounting measure, having more
bonds means the Trust Fund will last longer. In the meantime, however,
the government is counting on the revenue from the original purchase of
the bonds to pay for the cost of the new health care legislation. Thus,
it is using any savings from Medicare to pay for Obamacare, while
pretending it is available to pay for future Medicare benefits. As
Medicare's chief actuary points out, "In practice, the improved
[Medicare] financing cannot be simultaneously used to finance other
Federal outlays (such as the coverage expansions) and to extend the
trust fund, despite the appearance of this result from the respective
accounting conventions."
There is also reason to question whether the president's cuts will
actually occur and whether they will save anywhere near as much money as
claimed. The Congressional Budget Office recently pointed out that
virtually none of the president's proposed Medicare reforms have saved
money in practice. And, when it comes to reducing provider payments,
Congress hasn't exactly been a profile in courage: Witness the annual
spectacle of the "doc fix," postponing already scheduled cuts.
Meanwhile, Obama has also been attacking Romney for wanting to "end
Medicare as we know it." That's about as meaningful as saying that the
Carpathia ended the Titanic's voyage "as we knew it." The president's
implication that current seniors would lose their Medicare benefits is
particularly dishonest. Typical has been the claim by Obama campaign
advisor David Axelrod that Romney would throw his 85-year-old,
cancer-stricken father off Medicare.
But Romney and Ryan have been explicit that they wouldn't make
changes to Medicare for anyone age 55 or older today. No one currently
on Medicare would be thrown off the program, forced to pay more, or have
his or her benefits cut.
Even those under age 55 would still have the option to stay in
conventional Medicare if they wish. However, for those who want a
different option, insurance companies would bid for the right to
participate under Medicare. Plans would have to include certain minimum
benefits and accept all applicants, regardless of age or current health.
In the future, seniors could choose to receive a government payment
equal to the second-lowest bid in his or her geographic area. If seniors
choose a lower-cost plan, they could keep the difference. But if they
choose to enroll in a more expensive plan, they'll have to pay the
difference between what the government provides and the actual premium.
This is what President Obama refers to as "turning Medicare into a
voucher program."
After 2022, the Ryan budget would limit the growth of both the
traditional Medicare model and the new premium support option to roughly
the rate of overall economic growth, plus one percent. This happens to
be pretty much the same rate of growth as projected in the future by the
Obama administration.
Romney and Ryan assume that the combination of competition and
consumer cost-sharing will help hold down the cost of the program. If
they are wrong, it is likely that the government payment would not keep
up with the rising cost of insurance premiums. This means that the
insurance plans fully subsidized by the government would offer fewer
benefits than Medicare currently provides. Seniors who wanted a plan
that provided all the benefits offered by Medicare today would then have
to contribute some of their own money over and above the government
subsidy. This is the source of the president's claim that the
Romney-Ryan plan would cost seniors an additional $6,600. (The $6,600
figure is a bit dubious, actually derived from an earlier version of the
Ryan budget that included a tighter cap on future spending.)
But since we cannot pay the current level of benefits in the future,
seniors will either have to pay more or get less no matter who wins this
election. Romney and Ryan are simply being a little more explicit—and
honest—about it. Or at least they were until they started to deny it.
Politicians pandering to seniors is nothing new. But this year's
Medicare dishonesty is especially dangerous. With both campaigns
peddling the idea that any cuts to Medicare, now or in the future, are
automatically a bad thing, we run the risk of poisoning the well for any
future reform of the system. And if that is the outcome of this
election, America is in deep trouble, no matter who wins in November.
Only twice since World War II has the U.S.
unemployment rate reached 10%: It was 10.8% in 1982 and 10% in 2009. The
different responses of Presidents Ronald Reagan and Barack Obama—Reagan
lowering taxes and lifting regulatory and other barriers to economic
growth, Mr. Obama increasing the size and reach of the
government—represent polar extremes in policy. And in results.
Fifty-five months after the recession started in July 1981, the
Reagan recovery had created 7.8 million more jobs than when the
recession started, and real per capita gross domestic product was up by
$3,091. Fifty-five months after the recession that began in December
2007, there were four million fewer Americans working than when the
recession started, and real per capita GDP was down $803. The trajectory of household income is
even more telling. According to Sentier Research analysis of monthly
U.S. Census data, during the current recovery American households have
lost more income than they lost during the recession. In December 2007,
real median household income was $54,916. It had fallen to $53,508 when
the recession ended 18 months later. But by June 2012, real median
family income had fallen to $50,964.
During the Reagan recovery from 1981 to 1986, real median household income on an annualized basis rose by $3,380 or 7.7%.
There are other, deeply troubling differences between the Reagan and Obama recoveries. In July, most Americans were shocked to
discover that 246,000 new people had qualified for disability benefits
during the previous three months, while only 225,000 people had found
new jobs. A total of 471,000 Americans left the unemployment rolls—but
the difference between qualifying for disability benefits and getting a
job is profound for the economy and for the people involved. Fifty-five
months after the 1981 recession began, the number of Americans drawing
disability benefits had actually dropped by 655,000—or 14.3%.
The explosion of disability payments is only the tip of the iceberg.
Fifty-five months after the 1981 recession began, the number of people
on food stamps had fallen by three million, or 13.4%. The number of
food-stamp recipients since the recession that began in December 2007
has grown to more than 46 million, from 26 million—a mind-boggling 71%
increase.
While part of this growth is attributable to the failed recovery, a
significant amount has been created by the administration's effort to
expand the food-stamp rolls. In a pamphlet on its website, the U.S.
Department of Agriculture recommends that its employees provide "games,
food and entertainment. . . . [P]utting SNAP [food stamp] information in
a game format like bingo, crossword puzzles, or even a 'true/false'
quiz . . . helps get your message across." The department is now trying
to turn food stamps into an economic development program, asserting on
its website that $1.00 in new food stamps generates $1.92 in "new
economic activity." The number of beneficiaries of the Aid
to Families With Dependent Children program had declined by 1%, or
42,000 people, 55 months after the Reagan recession began. During the
Obama recovery, the number of beneficiaries in AFDC's successor program,
the Temporary Assistance to Needy Families program, has increased by
467,000, or 12%. This number can be expected to grow dramatically as a
result of the administration's recent decision to waive work
requirements for these welfare recipients.
Fifty-five months into the Reagan recovery, the number of Americans
drawing unemployment insurance had dropped by 357,000, or 11.9%. Today
there are 500,000 more Americans drawing unemployment insurance than
when the 2007 recession started, an increase of 19.2%. Historical data
and Congressional Budget Office projections for 2012 also indicate that
in the Reagan recovery, Medicaid enrollment grew by 535,000, or 2.4%. In
the Obama recovery, Medicaid enrollment has grown by more than 11
million, or 19.7%. In summary, the Obama administration not only has failed to bring
back the American economy, it has ushered in a frightening growth in
dependence. A review of the data from the 126 programs that today make
up America's $1 trillion welfare system shows the same basic pattern
over and over again. Expenditures on means-tested welfare programs have
grown 2.5 times faster during the Obama administration than in any
similar time period in American history. In those welfare programs that
existed during the Reagan era, the recovery resulted in either a decline
in beneficiaries or a slower rate of growth. These same programs have
ballooned during this administration.
When Americans voted for Barack Obama in 2008, they knew or should
have known that they were choosing a bigger federal government, higher
taxes and an expansion in the role that government would play in their
lives and businesses. They voted for it and they got it.
But Americans were not voting for economic stagnation, an explosion
of entitlements and a doubling of the national debt. Unfortunately these
things go hand-in-hand. As the European experience demonstrates, the
cost of big government is not just higher taxes; it's lower growth,
greater dependency and fiscal crisis.
So, how do you do your household budgeting? Millions of us use
QuickBooks or some variation thereof. For those who are
technologically challenged (I was for years), yellow pads,
composition books, copy paper, accounting journals, even index cards,
are the medium of choice.
However different their materials may be, most consumers who keep
a household budget without the aid of an accountant or bookkeeper use
pretty much the same method. As a rule, even accountants and
bookkeepers use the same method as those who scribble on scraps of
paper.
We call it household budgeting—a simple, straightforward name
for a simple, straightforward, sometimes painful process. Number
crunchers, however, simply can't resist giving things like this a
much more complicated-sounding name.
According to them, your household engages in what is now called
"zero-based budgeting." Simply put, you start at zero and
go from there. If cash gets tight, you might reduce your line item
for baseball game tickets from $1000 a year to only $500 or from $100
a month to $30. You can also add or eliminate line items with a
simple stroke of the pen—maybe you can't afford baseball tickets at
all. Regardless of what you decide to do, one thing is certain—if
you spent $1,000 on tickets last year and $1,000 again this year you
didn't cut your spending.
You also intuitively recognize that budgeting and spending is only
meaningful across certain time periods. If you budget ahead, as you
should, you might have budgeted $1,000 for tickets next year. But you
wouldn't have budgeted, under any circumstances, $1000 for baseball
tickets in 2016. Why? Because you're smart enough to recognize that
there are too many unknowns. In five years, your 10-year-old might be
bored with baseball; maybe there will be a strike in 2016 (it seems
like every minute players in some league are walking out and owners
are locking them out); maybe—no, certainly—ticket prices will
have changed by then. And, of course, it's in the back of your mind
that you might be making less money in 2016, though perhaps you'll be
making a lot more. Heck, maybe you'll win the lottery.
All of this makes sense, doesn't it? Unfortunately the way you,
and most members of the human race think about money—the way that
corporations, even very large ones, think about money—is NOT the
way the United States government thinks about money (i.e., your
money). The federal government uses "baseline budgeting," as
mandated by the Congressional Budget Act of 1974. Here is how
baseline budgeting is defined in current law: "For any budget
year, the baseline refers to a projection of current-year levels of
new budget authority, outlays, revenues, and the surplus or deficit
into the budget year and the out-years based on laws enacted through
the applicable date." And you thought credit card and mortgage
contracts were indecipherable?
Here's what that means in plain English. Each year, instead of
starting at zero, the government begins budgeting based on what they
spend the previous year, with projected increases over time.
Therefore, there's no place to go but up.
And here's the real kicker: originally, the mandate was to use
baseline budgeting for a projected period of five years, but soon
after the passage of the 1974 Act, that legislatively-mandated period
was extended to a 10-year projection.
This is voodoo economics at its best: the Congressional Budget
Office "CBO" baseline projects a spending increase for the
federal government of approximately $9.5 trillion over the next 10
years. Thus, through the magic of baseline budgeting, an increase in
federal expenditures of only $7.5 trillion over the same period would
be characterized as a budget CUT of $2 trillion! That's right, in
2021, even if we were spending $7.5 trillion more than we are today,
we would all be celebrating the "significant" budget cuts
that were made in 2011. A "non-cut" cut!
What would happen if you ran your household budget that way? It
would mean that if you spent $1,000 on baseball tickets this year,
you'd assume that the next year you'd spend maybe $1,100, regardless
of your financial situation. And, if you decided to only spend $1,075
the next, you could pat yourself on the back for "cutting"
your budget. Except we all know that in reality, you're actually
spending more than the previous year. That's insane, right?
Perhaps worse than the impact of baseline budgeting is the period
of 10 years that is the current vernacular of budget-speak. Ask any
business person you know how far out he or she projects revenue and
expenses. I asked two good friends of mine, one of whom had been the
founder and CEO of a New York Stock Exchange listed company and other
had been the President of a sizable regional bank (that was gobbled
up by a larger institution that was inhaled by yet a larger
institution that was swallowed by an even larger institution that
bought an equally large institution and changed its name during the
heyday of the bank consolidation craze and then collapsed during the
great financial 'Smores melt of 2008). The question was whether or
not they found 10-year projections to be at all useful in running
their businesses.
They both just laughed; so should you—unless it makes you cry.
Even Mao didn't have the cheek to plan his economy more than five
years ahead.
Here's something else that you probably don't know, and neither
did I until very recently: according to the Harvard Law School budget
policy seminar, ten-year baseline projections are not intended to be
precise. In fact, they can't be… because baseline budgets are
projections and actual budgets change every year. As is intuitively
obvious, baseline budgeting itself assumes that everything is OK, and
thus no major restructuring is required.
So what should we assume when we hear politicians from both sides
of the aisle bloviating about historic cuts or necessary revenue
increases? Everyone who talks about a cut is talking about a cut that
might happen over the next 10 years, assuming we have no financially
devastating terrorist attacks, mortgage crises or failing governments
in Europe. And of course it's not really a reduction in absolute
terms. It's only less than the growth in expenditures required by the
baseline analysis. What I assume is that all of this rigmarole will
have the effect—I hope not an intended effect—of making certain
that most voters don't really understand what the hell is going on in
Washington when it comes to money.
Obviously, the federal budget and the CBO budgeting procedures are
complex subjects. No doubt, any brief discussion of them is
inherently unfair. Nonetheless, I firmly believe that baseline
budgeting and ten-year projections need to go the way of the eight
track tape deck before we can understand, much less solve, the really
pressing issues created by budget deficits and credit downgrades.
It's a complicated problem. The current federal budget is 2,403 pages
long. I understand that we live in a big, complicated country, with
lots of obligations, but that's only slightly shorter than the latest
Webster's
Unabridged Dictionary, which is 2,783 pages and contains almost
every English word ever spoken. Thankfully, the budget is quite a bit
shorter than the U.S. tax code, which is currently clocking in at
about 70,000 pages.
Paddy Chayefsky said it best in his brilliant script for the movie
"Network." Like the ones most of us remember, these words
too are spoken by Peter Finch playing Howard Beale, a once-respected
network news anchor:
"I don't have to tell you things are bad. Everybody knows
things are bad. It's a Depression. Everybody's out of work or scared
of losing their job. The dollar buys a nickel's worth, banks are
going bust…We know things are bad— worse than bad. They're crazy.
"
That was written in 1974.
So, allow me to recap after 30 years in business management. BASELINE BUDGETING: BB Is a budgeting method by which the Fed. Gov. increases it's spending automatically by about 8% a year. So all the "Cuts in Spending" being discussed in D.C now are changes that merely slow the growth of federal spending programs in reality they are actually reductions in the rate of spending growth. So, when you hear that Harry Reid or John Boehner propose XYZ, remember they are talking about reducing the growth of spending, NOT SPENDING CUTS! ZERO BASED BUDGETING: ZBB Is the opposite of baseline budgeting. Zero based budgeting requires that all spending must be re-justified each year or it will be eliminated from the budget regardless of previous spending levels. So what's the value of zero-based budgeting? ZBB forces departments to justify their expenses every year. Without it, the politicians assume that what they previously approved was not only good, but needs more money to become even better. No accounibility, results, no worries, more money is better. We must demand that our Government scrap BB and adopt ZBB!!!! It can be done.
How much longer will we the people accept politicians who promise the moon and stars, yet deliver a black hole sucking sound using our money, yes our money like drunken sailors on a port visit? Wake up American citizens, stop getting swept away by rhetoric!!!
A fantastic, thought provoking couple minute video from Physicist Neil Degrasse Tyson's appearance on Real Time with Bill Maher on 8/5/2011.Spending priorities, short term vs long term focus.
Why does Paul Ryan scare the president so much? Because Obama has
broken his promises, and it’s clear that the GOP ticket’s path to
prosperity is our only hope.
I was a good loser four years ago.
“In the grand scheme of history,” I wrote the day after Barack Obama’s
election as president, “four decades is not an especially long time. Yet
in that brief period America has gone from the assassination of Martin
Luther King Jr. to the apotheosis of Barack Obama. You would not be
human if you failed to acknowledge this as a cause for great rejoicing.”
Despite
having been—full disclosure—an adviser to John McCain, I acknowledged
his opponent’s remarkable qualities: his soaring oratory, his cool,
hard-to-ruffle temperament, and his near faultless campaign
organization.
Yet
the question confronting the country nearly four years later is not who
was the better candidate four years ago. It is whether the winner has
delivered on his promises. And the sad truth is that he has not.
In
his inaugural address, Obama promised “not only to create new jobs, but
to lay a new foundation for growth.” He promised to “build the roads
and bridges, the electric grids, and digital lines that feed our
commerce and bind us together.” He promised to “restore science to its
rightful place and wield technology’s wonders to raise health care’s
quality and lower its cost.” And he promised to “transform our schools
and colleges and universities to meet the demands of a new age.”
Unfortunately the president’s scorecard on every single one of those
bold pledges is pitiful.
In
an unguarded moment earlier this year, the president commented that the
private sector of the economy was “doing fine.” Certainly, the stock
market is well up (by 74 percent) relative to the close on Inauguration
Day 2009. But the total number of private-sector jobs is still 4.3
million below the January 2008 peak. Meanwhile, since 2008, a staggering
3.6 million Americans have been added to Social Security’s disability
insurance program. This is one of many ways unemployment is being
concealed.
In
his fiscal year 2010 budget—the first he presented—the president
envisaged growth of 3.2 percent in 2010, 4.0 percent in 2011, 4.6
percent in 2012. The actual numbers were 2.4 percent in 2010 and 1.8
percent in 2011; few forecasters now expect it to be much above 2.3
percent this year.
Unemployment
was supposed to be 6 percent by now. It has averaged 8.2 percent this
year so far. Meanwhile real median annual household income has dropped
more than 5 percent since June 2009. Nearly 110 million individuals
received a welfare benefit in 2011, mostly Medicaid or food stamps.
Welcome
to Obama’s America: nearly half the population is not represented on a
taxable return—almost exactly the same proportion that lives in a
household where at least one member receives some type of government
benefit. We are becoming the 50–50 nation—half of us paying the taxes,
the other half receiving the benefits.
And
all this despite a far bigger hike in the federal debt than we were
promised. According to the 2010 budget, the debt in public hands was
supposed to fall in relation to GDP from 67 percent in 2010 to less than
66 percent this year. If only. By the end of this year, according to
the Congressional Budget Office (CBO), it will reach 70 percent of GDP.
These figures significantly understate the debt problem, however. The
ratio that matters is debt to revenue. That number has leapt upward from
165 percent in 2008 to 262 percent this year, according to figures from
the International Monetary Fund. Among developed economies, only
Ireland and Spain have seen a bigger deterioration.
Not
only did the initial fiscal stimulus fade after the sugar rush of 2009,
but the president has done absolutely nothing to close the long-term
gap between spending and revenue.
His
much-vaunted health-care reform will not prevent spending on health
programs growing from more than 5 percent of GDP today to almost 10
percent in 2037. Add the projected increase in the costs of Social
Security and you are looking at a total bill of 16 percent of GDP 25
years from now. That is only slightly less than the average cost of all
federal programs and activities, apart from net interest payments, over
the past 40 years. Under this president’s policies, the debt is on
course to approach 200 percent of GDP in 2037—a mountain of debt that is
bound to reduce growth even further.
Newsweek’s executive editor, Justine Rosenthal, tells the story behind Ferguson’s cover story.
And
even that figure understates the real debt burden. The most recent
estimate for the difference between the net present value of federal
government liabilities and the net present value of future federal
revenues—what economist Larry Kotlikoff calls the true “fiscal gap”—is
$222 trillion.
The
president’s supporters will, of course, say that the poor performance
of the economy can’t be blamed on him. They would rather finger his
predecessor, or the economists he picked to advise him, or Wall Street,
or Europe—anyone but the man in the White House.
There’s
some truth in this. It was pretty hard to foresee what was going to
happen to the economy in the years after 2008. Yet surely we can
legitimately blame the president for the political mistakes of the past
four years. After all, it’s the president’s job to run the executive
branch effectively—to lead the nation. And here is where his failure has
been greatest.
On
paper it looked like an economics dream team: Larry Summers, Christina
Romer, and Austan Goolsbee, not to mention Peter Orszag, Tim Geithner,
and Paul Volcker. The inside story, however, is that the president was
wholly unable to manage the mighty brains—and egos—he had assembled to
advise him.
According to Ron Suskind’s book Confidence Men,
Summers told Orszag over dinner in May 2009: “You know, Peter, we’re
really home alone ... I mean it. We’re home alone. There’s no adult in
charge. Clinton would never have made these mistakes [of indecisiveness
on key economic issues].” On issue after issue, according to Suskind,
Summers overruled the president. “You can’t just march in and make that
argument and then have him make a decision,” Summers told Orszag,
“because he doesn’t know what he’s deciding.” (I have heard similar
things said off the record by key participants in the president’s
interminable “seminar” on Afghanistan policy.)
This
problem extended beyond the White House. After the imperial presidency
of the Bush era, there was something more like parliamentary government
in the first two years of Obama’s administration. The president
proposed; Congress disposed. It was Nancy Pelosi and her cohorts who
wrote the stimulus bill and made sure it was stuffed full of political
pork. And it was the Democrats in Congress—led by Christopher Dodd and
Barney Frank—who devised the 2,319-page Wall Street Reform and Consumer
Protection Act (Dodd-Frank, for short), a near-perfect example of
excessive complexity in regulation. The act requires that regulators
create 243 rules, conduct 67 studies, and issue 22 periodic reports. It
eliminates one regulator and creates two new ones.
It
is five years since the financial crisis began, but the central
problems—excessive financial concentration and excessive financial
leverage—have not been addressed.
Today
a mere 10 too-big-to-fail financial institutions are responsible for
three quarters of total financial assets under management in the United
States. Yet the country’s largest banks are at least $50 billion short
of meeting new capital requirements under the new “Basel III” accords
governing bank capital adequacy.
And
then there was health care. No one seriously doubts that the U.S.
system needed to be reformed. But the Patient Protection and Affordable
Care Act (ACA) of 2010 did nothing to address the core defects of the
system: the long-run explosion of Medicare costs as the baby boomers
retire, the “fee for service” model that drives health-care inflation,
the link from employment to insurance that explains why so many
Americans lack coverage, and the excessive costs of the liability
insurance that our doctors need to protect them from our lawyers.
Ironically,
the core Obamacare concept of the “individual mandate” (requiring all
Americans to buy insurance or face a fine) was something the president
himself had opposed when vying with Hillary Clinton for the Democratic
nomination. A much more accurate term would be “Pelosicare,” since it
was she who really forced the bill through Congress.
Pelosicare
was not only a political disaster. Polls consistently showed that only a
minority of the public liked the ACA, and it was the main reason why
Republicans regained control of the House in 2010. It was also another
fiscal snafu. The president pledged that health-care reform would not
add a cent to the deficit. But the CBO and the Joint Committee on
Taxation now estimate that the insurance-coverage provisions of the ACA
will have a net cost of close to $1.2 trillion over the 2012–22 period.
The
president just kept ducking the fiscal issue. Having set up a
bipartisan National Commission on Fiscal Responsibility and Reform,
headed by retired Wyoming Republican senator Alan Simpson and former
Clinton chief of staff Erskine Bowles, Obama effectively sidelined its
recommendations of approximately $3 trillion in cuts and $1 trillion in
added revenues over the coming decade. As a result there was no “grand
bargain” with the House Republicans—which means that, barring some
miracle, the country will hit a fiscal cliff on Jan. 1 as the Bush tax
cuts expire and the first of $1.2 trillion of automatic,
across-the-board spending cuts are imposed. The CBO estimates the net
effect could be a 4 percent reduction in output.
The
failures of leadership on economic and fiscal policy over the past four
years have had geopolitical consequences. The World Bank expects the
U.S. to grow by just 2 percent in 2012. China will grow four times
faster than that; India three times faster. By 2017, the International
Monetary Fund predicts, the GDP of China will overtake that of the
United States.
Meanwhile,
the fiscal train wreck has already initiated a process of steep cuts in
the defense budget, at a time when it is very far from clear that the
world has become a safer place—least of all in the Middle East.
For
me the president’s greatest failure has been not to think through the
implications of these challenges to American power. Far from developing a
coherent strategy, he believed—perhaps encouraged by the premature
award of the Nobel Peace Prize—that all he needed to do was to make
touchy-feely speeches around the world explaining to foreigners that he
was not George W. Bush.
In
Tokyo in November 2009, the president gave his boilerplate
hug-a-foreigner speech: “In an interconnected world, power does not need
to be a zero-sum game, and nations need not fear the success of another
... The United States does not seek to contain China ... On the
contrary, the rise of a strong, prosperous China can be a source of
strength for the community of nations.” Yet by fall 2011, this approach
had been jettisoned in favor of a “pivot” back to the Pacific, including
risible deployments of troops to Australia and Singapore. From the
vantage point of Beijing, neither approach had credibility.
His
Cairo speech of June 4, 2009, was an especially clumsy bid to
ingratiate himself on what proved to be the eve of a regional
revolution. “I’m also proud to carry with me,” he told Egyptians, “a
greeting of peace from Muslim communities in my country: Assalamu alaikum
... I’ve come here ... to seek a new beginning between the United
States and Muslims around the world, one based ... upon the truth that
America and Islam are not exclusive and need not be in competition.”
Believing
it was his role to repudiate neoconservatism, Obama completely missed
the revolutionary wave of Middle Eastern democracy—precisely the wave
the neocons had hoped to trigger with the overthrow of Saddam Hussein in
Iraq. When revolution broke out—first in Iran, then in Tunisia, Egypt,
Libya, and Syria—the president faced stark alternatives. He could try to
catch the wave by lending his support to the youthful revolutionaries
and trying to ride it in a direction advantageous to American interests.
Or he could do nothing and let the forces of reaction prevail.
In
the case of Iran he did nothing, and the thugs of the Islamic Republic
ruthlessly crushed the demonstrations. Ditto Syria. In Libya he was
cajoled into intervening. In Egypt he tried to have it both ways,
exhorting Egyptian President Hosni Mubarak to leave, then drawing back
and recommending an “orderly transition.” The result was a
foreign-policy debacle. Not only were Egypt’s elites appalled by what
seemed to them a betrayal, but the victors—the Muslim Brotherhood—had
nothing to be grateful for. America’s closest Middle Eastern
allies—Israel and the Saudis—looked on in amazement.
“This is what happens when you get caught by surprise,” an anonymous American official told The New York Times
in February 2011. “We’ve had endless strategy sessions for the past two
years on Mideast peace, on containing Iran. And how many of them
factored in the possibility that Egypt moves from stability to turmoil?
None.”
Remarkably
the president polls relatively strongly on national security. Yet the
public mistakes his administration’s astonishingly uninhibited use of
political assassination for a coherent strategy. According to the Bureau
of Investigative Journalism in London, the civilian proportion of drone
casualties was 16 percent last year. Ask yourself how the liberal media
would have behaved if George W. Bush had used drones this way. Yet
somehow it is only ever Republican secretaries of state who are accused
of committing “war crimes.”
The
real crime is that the assassination program destroys potentially
crucial intelligence (as well as antagonizing locals) every time a drone
strikes. It symbolizes the administration’s decision to abandon
counterinsurgency in favor of a narrow counterterrorism. What that means
in practice is the abandonment not only of Iraq but soon of Afghanistan
too. Understandably, the men and women who have served there wonder
what exactly their sacrifice was for, if any notion that we are nation
building has been quietly dumped. Only when both countries sink back
into civil war will we realize the real price of Obama’s foreign policy.
America
under this president is a superpower in retreat, if not retirement.
Small wonder 46 percent of Americans—and 63 percent of Chinese—believe
that China already has replaced the U.S. as the world’s leading
superpower or eventually will.
It
is a sign of just how completely Barack Obama has “lost his narrative”
since getting elected that the best case he has yet made for reelection
is that Mitt Romney should not be president. In his notorious “you
didn’t build that” speech, Obama listed what he considers the greatest
achievements of big government: the Internet, the GI Bill, the Golden
Gate Bridge, the Hoover Dam, the Apollo moon landing, and even
(bizarrely) the creation of the middle class. Sadly, he couldn’t mention
anything comparable that his administration has achieved.
Now
Obama is going head-to-head with his nemesis: a politician who believes
more in content than in form, more in reform than in rhetoric. In the
past days much has been written about Wisconsin Congressman Paul Ryan,
Mitt Romney’s choice of running mate. I know, like, and admire Paul
Ryan. For me, the point about him is simple. He is one of only a handful
of politicians in Washington who is truly sincere about addressing this country’s fiscal crisis.
Over
the past few years Ryan’s “Path to Prosperity” has evolved, but the
essential points are clear: replace Medicare with a voucher program for
those now under 55 (not current or imminent recipients), turn
Medicaid and food stamps into block grants for the states,
and—crucially—simplify the tax code and lower tax rates to try to inject
some supply-side life back into the U.S. private sector. Ryan is not
preaching austerity. He is preaching growth. And though Reagan-era
veterans like David Stockman may have their doubts, they underestimate
Ryan’s mastery of this subject. There is literally no one in Washington
who understands the challenges of fiscal reform better.
Just
as importantly, Ryan has learned that politics is the art of the
possible. There are parts of his plan that he is understandably
soft-pedaling right now—notably the new source of federal revenue
referred to in his 2010 “Roadmap for America’s Future” as a “business
consumption tax.” Stockman needs to remind himself that the real
“fairy-tale budget plans” have been the ones produced by the White House
since 2009.
I
first met Paul Ryan in April 2010. I had been invited to a dinner in
Washington where the U.S. fiscal crisis was going to be the topic of
discussion. So crucial did this subject seem to me that I expected the
dinner to happen in one of the city’s biggest hotel ballrooms. It was
actually held in the host’s home. Three congressmen showed up—a sign of
how successful the president’s fiscal version of “don’t ask, don’t tell”
(about the debt) had been. Ryan blew me away. I have wanted to see him
in the White House ever since.
It
remains to be seen if the American public is ready to embrace the
radical overhaul of the nation’s finances that Ryan proposes. The public
mood is deeply ambivalent. The president’s approval rating is down to
49 percent. The Gallup Economic Confidence Index is at minus 28 (down
from minus 13 in May). But Obama is still narrowly ahead of Romney in
the polls as far as the popular vote is concerned (50.8 to 48.2) and
comfortably ahead in the Electoral College. The pollsters say that Paul
Ryan’s nomination is not a game changer; indeed, he is a high-risk
choice for Romney because so many people feel nervous about the reforms
Ryan proposes.
But one thing is clear. Ryan psychs Obama out.
This has been apparent ever since the White House went on the offensive
against Ryan in the spring of last year. And the reason he psychs him
out is that, unlike Obama, Ryan has a plan—as opposed to a narrative—for
this country.
Mitt
Romney is not the best candidate for the presidency I can imagine. But
he was clearly the best of the Republican contenders for the nomination.
He brings to the presidency precisely the kind of experience—both in
the business world and in executive office—that Barack Obama manifestly
lacked four years ago. (If only Obama had worked at Bain Capital for a
few years, instead of as a community organizer in Chicago, he might
understand exactly why the private sector is not “doing fine” right
now.) And by picking Ryan as his running mate, Romney has given the
first real sign that—unlike Obama—he is a courageous leader who will not
duck the challenges America faces.
The
voters now face a stark choice. They can let Barack Obama’s rambling,
solipsistic narrative continue until they find themselves living in some
American version of Europe, with low growth, high unemployment, even
higher debt—and real geopolitical decline.
Or
they can opt for real change: the kind of change that will end four
years of economic underperformance, stop the terrifying accumulation of
debt, and reestablish a secure fiscal foundation for American national
security.
I’ve said it before: it’s a choice between les États Unis and the Republic of the Battle Hymn.
I was a good loser four years ago. But this year, fired up by the rise of Ryan, I want badly to win.
With Barack Obama, the competition between the private economy and the public economy is clear.
For a long time, the United States had one economy. Now we have two
economies that compete for America's wealth: A private economy and a
public economy. The 2012 election will decide which will be subordinate
to the other. One economy will lead. The other will follow.
How the U.S. arrived at the need to choose between two competing
economies reveals a lot about the political polarization in the country.
Any history of the Democratic Party in the 20th century will recognize
its roots in the American labor movement. The party was defined by the
names of those unions. The United Mine Workers. The United Auto Workers.
The Brotherhoods of Teamsters and Railroad Workers. Consider what those
names represented: Both Democrats and Republicans were rooted in the
private economy. Unionized workers knew then that this private economy
was where they made their living. The arguments were over dividing the
productive fruits of that economy. That was your father's Democratic
Party.
From the 1960s onward, the professional Democratic Party
began to lose its relationship with the private economy. Democratic
politicians drew closer to a rising public-sector union movement and its
campaign financing, while the private unions declined. This meant the
party itself was slowly disconnecting from the machinery of the private
economy and becoming part of a rising parallel economy, the public
economy of government.
There was one other big event that convinced Democrats that their
public economy was equal to or better than the private economy. It has
to do with the Democratic Party's moral identity. After JFK's
assassination, Lyndon Johnson passed the building blocks of the Great
Society, notably Medicare and Medicaid. But most importantly came the
Voting Rights Act of 1965. The legislative events of that period (no
matter that they passed with bipartisan votes) convinced the Democratic
Party once and for all of government's moral efficacy. Public spending,
conclusively, was now a public good.
Columnist Daniel Henninger. Photo: Getty Images
Today the private and public economies are in
head-to-head competition for the nation's wealth—with the private
economy calling that wealth capital or income, and the public economy
calling it tax revenue and making moral claims for spending tax revenue.
Until recently and except for the Reagan years, the Republican Party
has largely been a confused onlooker, uncertain how to embrace the
private economy. In the 1990s, the party embraced the private sector
mainly as a source of contributions via K Street lobbyists. In short,
crony capitalism.
With the Obama administration, the tensions between the country's two
economies clarified. The $831 billion spending bill in 2009 was
intended to stimulate hiring of public-sector workforces but also among
the satellite businesses that are subsidiaries of the public economy.
Barack Obama's routine use of the traditional private-economy term
"investment"—in energy, education and such—is the public economy
claiming capital for its needs.
President Obama is telling the private economy it must subordinate
itself to the public economy's moral efficacy. The passage in 2010 of
the Affordable Care Act, with no Republican support, was justified as a
1960s-type act of moral necessity. The private economy, in his view,
can't compete on that basis.
In the November 2010 elections, the
private economy pushed back. Two years into the financial crisis and
amid tea-party insurgencies, Democrats were swept out of office at every
level of government.
These are not small events. Powerful belief systems are in motion
today, and they are slamming into each other. Rep. Paul Ryan in the
first sentence of his now-famous Roadmap budget said, "Rarely before
have the alternatives facing America been so starkly defined." President
Obama, announcing his ideas on taxes on July 9, said, "What's holding
us back . . . is a stalemate in this town, in Washington, between two very different views about which direction we should go in as a country" (emphasis added).
Those are the two poles in an historic battle over who runs the American economy.
For about 40 years before 2008, spending as a percentage of GDP was
around 20%. In 2009, it rose to 25% and has remained at 24% of GDP. This
isn't just spending data. These numbers are a proxy for the standoff
between the public economy and the private economy.
Some in the Democratic Party argue that this higher, "normal"
spending level (the White House projects 22+% of GDP going forward) is
necessary to fulfill the commitments our politics have made to retiring
baby boomers and others. The role of the private economy in the U.S.
will be to support the long-term wants and needs in the public economy.
President Obama is right: This is a choice between two paths into the
American future, the clearest choice since the end of World War II. It
is a mandate election.
Barack Obama is explicitly seeking a mandate to make the public
economy pre-eminent. That is the unmistakable meaning of "You didn't
build that." His opponent so far is talking about, but not seeking a
mandate for, the other economy. One expects that in time Mitt Romney
will seek a mandate equal to Mr. Obama's.
I'll add that therein lies the rub however- Size matters (of government)!! An economy where government takes up 60% of GDP won’t produce as much as the same economy if government takes up 20% of GDP. A simple, unarguable economic concept.
"We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle." ~ Sir Winston Churchill
Americans who want to put meaning to the words “headed in the
wrong direction” need look no further than to the economy, and their
place in it.
We’ve learned that our most important personal investment at the
moment is not our retirement fund (wobbling) or our home (still soggy)
or our savings account (a slight whiff of a return), but simply having a
job. And that investment for many is not performing all that well these
days.
What is becoming clear is that Washington policies are not helping us
individually or collectively on any of those fronts. In fact,
Washington policies are holding America back.
No one expected a quick, painless or “soft landing” recovery after
the Great Recession of 2008—picture a Gross Domestic Product chart that
looks like a Nike swoosh , not a V — but counterproductive actions such
as those by the Environmental Protection Agency and lack of attention to
issues such as China currency values are surely prolonging the malaise.
More importantly, the direction is pushing America toward less freedom,
less free enterprise, less individual liberty.
Those are the messages from our writers in this Special Focus:
Economy & Budget edition of Human Events. We asked leading economist
Peter Morici to address concerns about China; Carl’s Jr. CEO Andrew
Puzder to analyze Mitt Romney’s economic plan; Attorney Karen Harned of
the National Federation of Independent Business to explain the adverse
impact of Obamacare on small business. Human Events senior reporter
David Harsanyi, after interviews with economists, scholars and others,
distills the “Five Ways to Get America Working Again.”
And, as one-time presidential candidate Steven Forbes points out in
his article, how America tackles its economic problems will have
implications for struggling nations everywhere. Will our example to the
world be one of free markets, innovation and entrepreneurship? Will we
be like little Estonia, reducing government and encouraging business;
or, more like Greece, raising taxes and expanding our debt?
The answer, to an unsettling degree, lies in Washington, and in the November election. President Obama failed to address China’s economic warnings
by Peter Morici
Mitt Romney needs to tell voters that by developing domestic resources
and taxing China’s currency manipulation, the current U.S. trade deficit
could easily be halved. 5 ways to get America working again
by David Harsanyi
Washington needs to stop crushing the economy and start helping the
fragile recovery. Human Events offers five ways to put America back to
work. Supreme Court health care decision costly to small business
by Karen R. Harned
National Federation of Independent Business will continue its fight for
small business to have real choice and competition through
private-market solutions that do not trample on individual freedom. America is at a crossroads for freedom, with worldwide implications
by Steve Forbes
“The blunt truth is if the U.S. gets it right, the rest of the world has
a chance to get it right. If we get it wrong, the rest of the world is
in trouble.” Mitt Romney’s approach would differ greatly from Obama’s failed vision
by Andrew Puzder, CEO of Carl’s Jr. and Hardee’s restaurants
We asked Andrew Puzder, a surrogate for Mitt Romney, to write about what
he considers the key tenets of the candidate’s economic plan, and he
told us these factors will make a crucial difference in business health,
new investment and job creation.
